Google paid clicks data generate debate

March 27, 2008 12:46:06 PM PDT

By AMANDA FEHD, Associated Press Writer

New data confirming slowing growth in Google Inc.'s paid clicks renewed debate Thursday on Wall Street over whether the Internet search company's revenue can quickly adjust to changes it made in how it generates clicks. Citing data that comScore Inc. released after the market closed on Wednesday, analysts said growth in Google's click-through rate has nearly ground to a halt. Google's stock dropped $16.09, more than 3.5 percent, to $442.10 in afternoon trading. The click-through rate grew 3 percent in February compared to a year earlier, and January saw no increase compared to January 2007. Several months earlier, the rate was growing 25 percent to 40 percent compared to a year earlier. The new data is in line with click-through declines Google reported last quarter. Google, which gets paid when users click on a sponsored ad that comes up as the result of a Google search, has reported steadily rising per-click revenue. The Mountain View-based company said in January that the drop in click-through rates is a result of its efforts to boost the usefulness of each click to its advertisers' sales performance. For instance, the company decreased the space around a word that would result in a click, so more clicks would be intentional. Analysts disagree on how long it will take Google's per-click revenue to adjust to any increased value per click it has created.

Rob Sanderson, an analyst with American Technology Research, said per-click revenue will rise immediately if advertisers see more value in each click, because they'll pay more for them at auction.

"It's not clicks that advertisers are really buying, it's what those clicks get them, which is sales conversions," said Sanderson.

Colin Gillis, an Internet analyst at Canaccord Adams, also was optimistic.

"It's very difficult to spin this as positive data point, but it also doesn't mean the world is ending," Gillis said.

The click-through rate is only one piece of the equation for Google, he said.

"The counter point is that Google is out there saying, 'We are trying to make our clicks more worthwhile.' They want to actually deliver relevant hot leads to their customers because that's what their customers want," Gillis said.

Other analysts disagreed.

Piper Jaffray analyst Gene Munster predicted Google will fall short of Wall Street expectations in the current quarter because of the click-through rate.